The past week saw most airline stocks trading in the red due to the upward movement of crude oil prices. However, the decline in airline stock prices should not be regarded as intimidating as we feel this is only a short-term phenomenon.
In our opinion, the industry is backed by strong fundamentals that should allow the stocks in the space to thrive during such times. We expect oil prices to continue fluctuating for the time being, although it is highly unlikely that they will touch the highs of 2014 any time soon. With most airline stocks trending down over the past week, it was no surprise that the NYSE ARCA Airline index gained a mere 0.9% over the said period.
On the news front, the proposed strike of the pilots of Allegiant Air LLC, the subsidiary of Allegiant Travel Co. ALGT, was put off albeit temporarily thanks to a court order. The court order spared thousands of travelers from unnecessary harassment.
Airline behemoth Delta Air Lines, Inc. DAL was also in the news with its passenger unit revenue (PRASM, a product of passenger yield and load factor) for the month of March 2015 being adversely impacted by foreign currency movements. Alaska Air Group, Inc. ALK, the parent company of Alaska Airlines, reported healthy traffic numbers for March buoyed by increased demand. Furthermore, American Airlines Group Inc. AAL, formed following the Dec 2013 merger between AMR (American Airlines' parent group, founded in 1934) and US Airways, also grabbed headlines during the week as the merger integration process moved a step forward toward completion.
(Read the last Airline Stock Roundup for April 1, 2015)
Recap of the Past Week’s Most Important Stories
1. Thousands of passengers of Allegiant Air were spared from unwanted harassment over the Easter holiday weekend, thanks to a court ruling that blocked the company’s pilots from going on strike over long-standing contract disputes with management. A court in Las Vegas issued a temporary restraining order against Allegiant pilots’ union (read more: Allegiant Air Pilots' Strike Averted for the Moment).
2. Delta Air Lines stated, while reporting traffic figures for the month, that its March PRASM, on a consolidated basis, remained unchanged year over year due to international weakness. On the domestic front, however, PRASM climbed 2.5%. A strong dollar negatively impacted international results. The company further stated that for the first quarter of 2015, the projected fuel price stands at approximately $2.90 to $2.95 per gallon (read more: Delta's March PRASM Hit by Currency Headwinds).
Also during the week, the carrier announced its plans to introduce non-stop flights from its largest hub in Atlanta to the Colombian cities of Medellin and Cartagena from Dec 19, 2015. The addition of the new routes is aimed at bolstering Delta’s presence in Latin America (read more: Delta Air Lines to Connect Cartagena, Medellin with Atlanta).
3. Alaska Air Group saw its March air traffic (measured in revenue passenger miles or RPMs) move up 11.2% year over year on a 12.4% rise in capacity. Load factor (% of seats filled by passengers) fell 100 basis points to 86.1%, courtesy the greater rise in capacity (read more: Alaska Air Group's March Traffic Rises on Higher Demand)
4. The merger integration process of American Airlines and US Airways moved a step closer to completion when the FAA approved that the two airlines will be able to operate under a solitary certificate, going forward. The single airline approval implies that most flight operations, maintenance and dispatch procedures will be the same for all flights operated by American Airlines and US Airways. The reservation systems are expected to be merged later in the year. Eventually planes operated by US Airways will be repainted to sport American Airlines’ colors and logo. The FAA’s decision positively impacted American Airlines Group’s shares.
5. In a bid to expand further and improve passenger convenience, low-cost carrier Southwest Airlines LUV flagged off new nonstop flights between its home base in Dallas Love Field and nine additional U.S. cities. The expiration of the Wright Amendment, which governed traffic at Dallas Love Field earlier, has reasonably benefited Southwest Airlines.
Performance
The following table shows the price movement of the major airline players over the past week and during the last 6 months.
|
Company |
Past Week |
Last 6 months |
|
HA |
0.60% |
64.77% |
|
UAL |
-7.45% |
34.15% |
|
GOL |
8.06% |
50.0% |
|
DAL |
-1.25% |
24.36% |
|
JBLU |
1.63% |
78.28% |
|
AAL |
-4.44% |
44.7% |
|
SAVE |
-0.41% |
25.56% |
|
LUV |
-2.31% |
33.45% |
|
CPA |
3.72% |
-5.64% |
|
ALK |
-0.14% |
51.21% |
As the chart above suggests, most of the airline stocks traded in the red over the past week. Latin American carrier GOL Linhas Aereas Inteligentes GOL was the only one to have gained significantly with its shares appreciating 8.06% over the said period. Meanwhile, most of the stocks have gained over the last six months, with JetBlue Airways JBLU witnessing the highest upside (78.28%) over the period.
What’s Next in the Airline Biz?
With the earnings season yet to commence, we expect traffic updates from some carriers in the coming days. Focus will also remain on the price movement of airline stocks given the volatile nature exhibited by oil prices lately.
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